Higher minimum wage in San Jose would boost the broader economy

Mercury News, February 4, 2012

By Sylvia A. Allegretto

In the lingering aftermath of the Great Recession, is there a public policy that can boost the broader economy and help low-wage workers without costing taxpayers a dime? Yes, there is: raising the minimum wage. Community members in San Jose are gathering signatures for a ballot initiative that would do just that.

California‘s wage floor has been at $8 an hour since 2008. The San Jose initiative would establish a citywide minimum wage of $10 starting in 2013. Additionally, to keep the pay of San Jose‘s lowest wage workers from eroding over time, the initiative proposes annual indexing in 2014.

The prices of gas, food and health care have risen over the past four years while the wages of the state‘s lowest paid workers haven‘t budged. An eroding minimum wage and the ongoing weak recovery have made it increasingly difficult for families to make ends meet. An increase in the minimum wage would help low-wage workers make up for lost ground and boost consumer spending. Putting a little more money in the hands of those who greatly need it and will spend much of it locally is good policy.

But what about jobs, you say? Well, the often told story of supply and demand that predicts (under strict conditions) employment losses from minimum wage increases is too simplistic and not indicative of low-wage labor markets. In reality, these labor markets are complex, as shown in a comprehensive new body of research that my colleagues Arindrajit Dube, Michael Reich and I have contributed. Our result further validates and expands upon research showing that raising the minimum wage boosts incomes for the lowest-paid workers without reducing employment.

Our study, published last year in the peer-reviewed economics journal Industrial Relations, examined earnings and employment data before and after every state and federal minimum wage increase from 1990 through 2009. We specifically analyzed minimum wage increases during times of high unemployment, including the Great Recession, and found that even in difficult economic times, increases in the minimum wage did not cause job loss.

We also demonstrated how the old findings of job losses were erroneously attributed to the minimum wage. Older studies failed to sufficiently account for factors such as regional economic shocks and long-run trends in low-wage employment. When we accounted for these important factors, the alleged negative employment effects disappeared.

The San Jose initiative is similar to an ordinance passed in 2003 in San Francisco, where the minimum wage is now $10.24 an hour. In another pertinent study, my colleagues looked at the effects of the San Francisco citywide minimum wage and found that the policy increased worker pay and compressed wage inequality but did not create any detectable employment loss or relocation of firms.

This growing body of research moves the discourse on the minimum wage in a direction that shows broad benefits of increasing the wage floor: Workers get larger paychecks; the economy gets a boost; and employers have lower turnover rates and vacancies, better recruitment opportunities, and increased productivity from experienced workers.

Raising San Jose‘s minimum wage to $10 and adjusting it for inflation means the recovery will be more broadly shared and more sustainable. Voters can proceed with this smart policy knowing that the best scientific research has confirmed that raising the minimum wage helps low-wage workers without causing job losses. The economic case for this wage increase at this time is more than compelling.